MUMBAI: PSA Peugeot Citroen and Tata Motors are in talks to form a partnership that might result in Tata producing and distributing the French giant’s cars in the Indian market, several people close to the development said. The two firms may also share engine technology, they added.If talks fructify, Tata Motors could make PSA’s cars at its Sanand plant in Gujarat. The factory was set up to produce the Nano, the minicar, whose sales fell short of Tata’s expectations and worsened its position in a sluggish auto market.

PSA, which has emerged stronger under chairman Carlos Tavares after a French-Chinese bailout, is reviewing its foreign plans. These include exploring the possibility of launching the 208 hatchback, 308 sedan and the 2008 crossover in India, a market the French company exited a decade-and-half ago after making a brief appearance.

ET spoke with five people close to the development and they said that PSA wants to tieup with a reputed local carmaker with a strong product and spare parts distribution reach and popular brand recall.

The fact that Sanand has enough capacity to meet the French firm’s needs is an added bonus, they added. The PSA Group didn’t respond to an email seeking comment.

A Tata Motors spokeswoman said her company doesn’t comment on future product plans, capacity expansion or utilisation. Emmanuel Delay, head of India Pacific Operation at the PSA Group, is steering discussions with senior executives of Tata Motors, including president and head of product engineering Tim Leverton and chairman Cyrus Mistry, sources said.

He recently visited Bombay House, the Tata headquarters in Mumbai, to discuss the contours of a deal.

Initial discussions were held between the two at the recent Frankfurt show, sources said. Tavares is understood to have given a clear mandate to Delay to fast track the India plans, they said.

PSA held talks with other car makers as well, but Tata Motors is likely to be the main contender, one of the five people said. A tie-up could include contract manufacturing, as well as sharing of engines and vehicle platforms.

It is not known if equity purchase is a part of the talks. “If this arrangement works, it would benefit both PSA and Tata Motors immensely,” said Gautam Sen, a Paris-based automotive consultant.

“PSA gets a foothold into India at minimal investment and for Tata Motors, it will get an excellent platform and family of engines that could be the basis for building the entire range of future products.”

PSA held talks with other car makers as well, but Tata Motors is likely to be the main contender. A tie-up could include contract manufacturing, as well as sharing of engines and vehicle platforms.

Sources said the other car makers PSA spoke for a possible partnership included Mahindra & Mahindra, General Motors as well as Hindustan Motors, which stopped producing the Ambassador cars last year.

The talks with PSA are on the lines of a similar agreement Tata signed with Fiat in 2007/08. That partnership did not end well with the distribution and service agreement ending in 2012. The manufacturing tie-up with Fiat still continues.

Entering into a deep relationship with a local company like Tata Motors will enable PSA to make a quick entry into the Indian market without resorting to an expensive and time-consuming effort that would entail an investment of over $1 billion for a standalone entity.

As part of wider discussions, even the possibility of PSA sharing the high-tech DW10 2-litre diesel engine with Tata Motors-owned Jaguar Land Rover is being considered.

PSA had hired a consultant to chart its India comeback plan. Its proposals are likely to be submitted to Tavares before the end of 2015.

In fact, segment leaders like Maruti Suzuki, Tata Motors and Hero MotoCorp have reported de-growth of 34.3 per cent, 45 per cent and 20 per cent, respectively giving a clear indication of a prolonged slowdown in the sector.